Property Management from 10,000 Feet: The Big Picture

What does a property management company do? The answer is simple: more than most people realize.

A Property Manager with keys in hand.

What does a property management company do all day?  It’s a legitimate question – and here’s the answer, in all its complicated glory.

The basic process of a property management company goes like this:

Owner Intake: We add a new owner to our client list. In order to do that, we have to:

  1. Get all of the relevant paperwork (most importantly a signed Property Management Agreement and a schedule of properties they want us to manage) from them.
  2. Get their banking information and set up the necessary accounts and systems to move money to and from their accounts to our accounts.
  3. Then, for each house they want managed, we do a House Intake.
  4. And the owner joins the Accounting Cycle.

Accounting Cycle: We offer our owners monthly reports and, when available, disbursements:

  1. Each month, we publish reports on cash flow, portfolio activity, and total value for each owner.
  2. On the 8th and the 23rd the month, if and owner’s account balance exceeds their Unpaid Bills + Hold Amounts + Portfolio Minimum, the excess triggers an Accounts Payable Cycle to disburse those funds to the owner (to arrive on the 15th and the last day of the month, or the first business day thereafter).
  3. Once each season, we perform a full account balance reconciliation to make sure we’re where we think we should be in terms of money being where it belongs.

House Intake:  We add a new home to our roster. In order to do that we have to:

  1. Start an Inspections Cycle to establish its basic information (square footage, major features, etc.)
  2. If there’s a tenant…
    1. …with an existing lease, acquire a copy of the existing lease and file it to reference if any issues come up with that tenant in the past.
    2. …without an existing lease, either…
      1. get them to sign a copy of our lease, or
      2. Start an Eviction Cycle to get them out of the house.
    3. Also, in either case, the tenant’s utilities paperwork set up through us so that we can track their bill payments.
    4. At which point the house moves into either the Vacant House Cycle or the Occupied House Cycle as relevant, and is constantly on an As-Needed House Cycle
  3. If at any point during it’s time with us, the owner decides to sell the home, we offer the services of our selling agent and (if desired) start a Maintenance Cycle to get the house into good selling condition.

As-Needed House Cycle: A good number of events aren’t regularly-recurring, but happen on when demanded by some other party, such as the government or the owner. So these events aren’t scheduled, but rather triggered:

  • Mandated Repairs: Various government entities have a variety of reasons to provide lists of repairs that that must be performed in order to keep a rental legally rentable, either in general or to its current tenant. For each of these, we start a Maintenance Cycle to get those repairs done, and an Inspections Cycle to work with the government inspectors and get details on the repairs that need to be/have been made. These include:
    • Blight tickets or other ordinance violations by each municipality,
    • Landlord Licensing/Rental Registration efforts by each municipality,
    • Section 8 (and similar housing-assistance programs) often require their own inspections and demands specific repairs that are stricter than most municipalities’ lists in order to have a tenant’s rent paid through their programs,
  • Property Sale: As much as we’d like to keep every property we manage on our roster forever, all too often a property owner will decide that it’s in their best interests to sell a property. When we hear that this is happening, we offer the owner our services in:
    • Evaluating the property’s reasonable target sale price, and
    • Listing the property for sale through our associated real-estate agent.
    • (We also offer our usual ongoing services, so the owner can have us continue repairing/marketing/collecting rent/etc. while the home is being sold.)

Vacant House Cycle:  As soon as a house becomes both vacant and managed by us, we have to:

  1. Start an Inspections Cycle to establish its current condition.
    1. If needed, start a Maintenance Cycle to get the house into a rent-ready state.
    2. If just-vacated, the same inspection is used to determine how much of the former tenant’s security deposit can be returned to them.
  2. Once the house is rent-ready, we start a Marketing Cycle to get a tenant moved into the house.
  3. As applicants are drawn in through the Marketing Cycle, each ones goes through the Tenant Screening Cycle to establish their qualifications as a tenant.
  4. And eventually, one of them puts a deposit down and signs a lease, initiating a Move-In Cycle.

Move-In Cycle: When it comes time to move a new tenant into a house, we have to:

  1. The approved applicant’s deposit goes through the Accounts Receivable Cycle and their signed lease is filed.
  2. The applicant is given a key on their approved move-in date.
  3. We begin an Inspections Cycle to record of the status of the property upon move-in so that when they move out, we can compare the move-in and move-out records and establish how much of their security deposit they can get back.
  4. If the tenant has issues with the condition of the property, they have 30 days to report those issues and have us start a Maintenance Cycle to get them taken care of at the owner’s expense.
  5. We process all of their utility hookup paperwork.
  6. At that point, the property joins the Occupied Property Cycle.

Occupied House Cycle: Each house that has a tenant in it goes through the same processes:

  1. Each month, we collect rent payments (and due to the wording of our lease, all overdue money is considered part of the rent payment). Depending on the tenant and the specific lease each tenant has signed, most have a 5-day grace period before anything happens – but some that need cracking down on get none.
    1. If the tenant pays on time, the payment goes through the Accounts Receivable Cycle.
    2. If the tenant doesn’t pay on time…
      1. …and they gave us an explanation ahead of time about why they can’t (and we find it reasonable)…
        1. …and that explanation isn’t “I’m putting your rent money in escrow until this list of maintenance issues is taken care of, we charge them a late fee and take note of any special arrangements they’ve requested.
          1. Then we get permission from the owner to follow those arrangements. If they’re ever late on a payment that is a special arrangement, we start a Collections Cycle.
        2. …and they are putting rent in escrow until the maintenance issues are taken care of, we don’t charge them a late fee and we start a (or put pressure on the existing) Maintenance Cycle to address the problem.
      2. …and they don’t give us any explanation or warning…
        1. …we start a Collections Cycle.
      3. Roughly ten months through each tenant’s lease, we start an Inspection Cycle geared toward assessing the state of the home and making any unreported repairs that need making.
        1. If we find any significant needs in that inspection, we start a Maintenance Cycle to address them.
      4. If the tenant submits a service request, we start a Maintenance Cycle to address that request.
        1. If the issue is something that the tenant could reasonably have taken care of themselves, or that the lease requires them to take care of themselves, the cost of the work is charged to the tenant. Otherwise, it’s charged to the owner.
      5. If at any point we discover that the tenant is doing something illegal on the property, or violating the terms of their rent, we initiate an Evictions Cycle to remove them.
      6. Near the end of each lease, we contact the tenant and ask them to renew.
        1. If the declare they are renewing, we adjust their rent according to their lease and move forward.
        2. If they don’t respond, they default to a month-to-month lease with an automatic 10% bump in rent.
        3. If they declare they’re not renewing, we settle their accounts (not including their security deposit).
          1. If they’ve already at zero, nothing happens.
          2. If they have a credit, it waits until their Security Deposit disbursement goes out below.
  1. Then the property goes into the Vacant Property Cycle.

Accounts Payable Cycle: We need to give money to someone that we owe, so:

  1. We receive an invoice or bill, or recognize that it’s time to disburse funds due to an internal process.
    1. If it’s an invoice or bill, the Accounting Department inquires with whichever other Department is relevant to confirm that the invoice or bill is legitimate and deserves to be paid.
      1. If they don’t get an approval back, the invoice or bill is put on a list to be checked up on again in a week or two.
      2. If they do get approval back, Accounting files a copy of the invoice or bill, then enters all of the details of the bill into our system.
    2. If it’s a disbursement, they verify that the portfolio triggering the disbursement doesn’t have any irregularities, and then they verify that the amount being disbursed won’t put the portfolio below the amount it needs to pay its outstanding bills, satisfy any ‘hold-funds’ orders, and still maintain its required minimum balance.
      1. If they find something wrong, they investigate to determine what is wrong and communicate with the owner about what happened.
      2. If not, they enter all of the details of the disbursement into our system.
    3. In either case, the owner receives a notice that says “Here’s an expense we need to pay, please verify.”
      1. When the owner verifies, Accounting alerts the bank, and the payout is made.

Accounts Receivable Cycle: We’re getting money from someone who owes us, so:

  1. We accept the payment via
    1. bank transfer,
    2. check,
    3. money order,
    4. PayPal, or
  2. We enter the payment in our system, and
  3. Upload a picture or scan of the proof-of-payment to our system.

Inspections Cycle

  1. An Inspection Work Order is opened in our system, attached to the relevant building, unit, and if needed, tenant. It explains what is to be inspected, what records are to be taken of that inspection, and by when.
    1. One of our inspectors is assigned to perform the inspection.
      1. This generally means they access a unit, look carefully at either a list of specific items or at the condition of the unit in general.
      2. It can also mean meeting a government inspector at a unit and accompanying them through as they do their thing.
    2. When the results come in, they are uploaded to the cloud for later viewing, and links to those results are emailed to the owner and any other relevant parties (most often Maintenance or Collections).
  2. The inspector turns in an invoice, and once the resulting materials have been verified as satisfactory, it triggers an Accounts Payable Cycle.

Maintenance Cycle

  1. A Maintenance Work Order is opened in our system, attached to the relevant building, unit, and if needed, tenant. It explains what needs to be fixed and by when.
    1. We look through our list of contractors and assign the one we feel is best for some portion of the job.
      1. Repeating that process until all of the tasks that are part of the job are assigned.
    2. That contractor accepts or declines that portion of the job.
      1. If they decline, we assign a new contractor and start again.
      2. If they accept:
        1. We ask them for an estimate of how much total it will cost to get the work done.
        2. We take that estimate and report it to the owner for approval.
          1. If the owner declines, we find out why, and address the problem before trying again, either with the same contractor but different parameters, or with a different contractor.
          2. If the owner has questions about the estimate, we run interference between them and the contractor until the owner feels comfortable either approving the estimate or declining it.
          3. If the owner approves, we make sure they have enough money in their account to pay for the job.
            1. If they don’t, we ask them to deposit enough to cover the difference.
            2. If (or once) they do, we put a hold for the amount of the job on their account to prevent the money from being disbursed to them or spent elsewhere.
  • If they decline to deposit enough to cover the job, we put the Work Order on hold until they can do so.
  1. Once we’re confident the job will be paid for, we alert the contractor to begin the work, and check in frequently to make sure everything is progressing apace.
    1. Once the work is complete, we verify the quality of the work to various degrees based on the cost of the repairs, initiating an Inspections Cycle for anything over $1000.
      1. If the unit is occupied, we always check with the tenant to make sure they’re satisfied with the repairs as well.
    2. The contractor sends in an invoice, and once the work is verified to our satisfaction, the invoice is put through the Accounts Payable Cycle.

Collections Cycle: When someone owes us money, we have to collect, so we:

  1. Reach out to the entity that owe us via phone, SMS, and email to inform them of the fact that they owe. (Our system automatically generates a late fee at the appropriate time as well.)
  2. After we’ve reached out for the third time (across a minimum of five business days),
    1. if we’ve gotten no response, we initiate whatever action is it we can take against that particular entity. In the most common case (tenants), we start an Evictions Cycle, but if it’s a vendor or a municipality or an owner, actions differ and are largely dictated by specific circumstances.
    2. If we have gotten a response,
      1. And it was “Sorry, here’s the money,” we start an Accounts Receivable Cycle and we’re all good.
      2. And it was “Sorry, but I can’t pay all the money,” we do our best to work out a reasonable payment plan with the entity.
        1. If we can work out a plan that everyone is good with, we record that plan in the system, including specific payment amounts and dates.
          1. If they follow the plan, we’re all good.
          2. If they miss a payment on the plan, we start a (recursive) Collections Cycle.
        2. If we can’t work out a plan that everyone is good with, we proceed with whatever actions we would have done at point 2a above.

Evictions Cycle: When someone has to be legally removed from a property, the process is necessarily complex. We have to:

  1. Send a notice describing why they’re being evicted. Some of these notices have an ‘out’ – something the tenant can do to avoid being evicted.
    1. If the tenant does that thing in time, the eviction is cancelled.
  2. If there is no ‘out’ or the tenant fails to execute it, then after a week, we send our attorney copies of all of the relevant paperwork, and we start an Inspections Cycle to determine whether or not the tenant is still occupying the property.
    1. If they are not, we proceed to secure the property.
      1. If the tenant left belongings behind, we store them until we are legally allowed to dispose of them without being penalized if the tenant appears to claim them.
      2. If not, we move the property into the Vacant House Cycle.
    2. If the tenants are still occupying the property, our attorney requests a court date.
  3. Once we get a court date, we repeat the occupancy check process above a second time, except this time, if the tenants are still occupying the property and there’s an ‘out’ available to them and the owner agrees that it’s wise, we offer the tenants the chance to execute their ‘out’ again and thus have their eviction cancelled.
  4. At the court date, things can go sideways in a wide variety of ways that we can’t cover in this already-complex process, so we’ll summarize by saying that the tenant is almost never immediately evicted (unless they were cooking meth or something similarly bad). Instead, the judge almost always gives the tenant 10 days to resolve whatever issue they were getting evicted for.
    1. If they resolve everything within those 10 days, they get to stay in the home.
      1. Unless they make an extended payment plan with the judge’s permission, in which case we have only 56 days from the court date to request a Writ of Eviction (though this can be doubled if we ask the judge near the end of the first 56 to give us 56 more.)
      2. If we fail to follow through and either collect or request a Writ of Eviction by the time the deadline hits, we have to start this process entirely over.
    2. If they don’t, we request a Writ of Eviction, which takes several days as it has to be signed by a judge.
  5. Once we have a signed Writ of Eviction, we contact the court, perform an Accounts Payable Cycle to pay the bailiff’s fee and, in the City of Detroit, a legally-required dumpster to be on site when be bailiff is scheduled to arrive.
  6. The bailiff will mail and post a notice that the Writ of Eviction will be executed on a specific date and time. The vast majority of tenants move out in response.
  7. If the tenants are still present, the bailiff will watch over as the tenants and their belongings are removed from the property, with the belongings going in the dumpster. We will have a locksmith on hand to rekey on the spot, and the unit will join the Vacant House Cycle.

 Marketing Cycle: In order to get a new tenant moved into a vacant and rent-ready unit, we:

  1. Gather all of the information we have on the unit, including the most recent good-looking pictures we have.
    1. We choose the best 1-3 pictures for each room (as well as exterior and garage) and edit them to make them as attractive as possible, also adding a watermark to prevent scammers from using the pictures for their own ends.
  2. Write an advertisement that describes the house and the neighborhood as well as giving a variety of specific details about each.
  3. Post that ad and the edited pictures through a few different syndication services that end up spreading the ad out onto a significant number of websites.
  4. Sometime shortly after the 15th and last day of each month, we publish an update to each of our owners that describes how the ad is performing.
    1. If the ad is doing poorly in any one of several metrics we track, we note that fact, investigate to see if we can pin down why it’s doing poorly, and inform the owner of what we believe we can do about it. If our suggested course of action would cost the owner money (or reduce future income), we ask for their permission to go through it; otherwise, we execute by default.
  5. After approximately 55 days, we take the ad down for five days in order to ‘reset’ the ad’s freshness and draw in a fresh surge of traffic.
  6. Applicants  schedule showings and see the properties.
    1. If they provide feedback about the unit, we provide that feedback to the owner in the aforementioned report.
    2. If they have questions about the unit, we get those questions answered.
    3. If they’re interested in applying for the unit, we tell them how to best accomplish that.
  7. As the ad draws in applications, each one triggers a Tenant Screening Cycle.

Tenant Screening Cycle: Each applicant that comes in has to be tested to make sure they’re going to be a good tenant. This requires that we:

  1. Receive an application filled out in full along with an application fee.
  2. Obtain a significant amount of documentation from each applicant. We ask each applicant for information about their current and previous residence, current and previous job, references, any bankruptcies, any prior evictions, and more.
    1. If they don’t provide everything we need, we reach out to them every few days and ask them to provide whatever we’re missing. If they fail to respond to three consecutive outreaches, we mark that application ‘unresponsive’ and stop trying.
    2. If they do provide everything we need, we upload copies to our system and save copies to our cloud file server.
  3. Once we have all of the information, we go through a number of verifications.
    1. We perform a standard-issue criminal background check,
    2. We perform a detailed credit check,
    3. We call their employer to verify their income and ask for a reference,
    4. We call their previous employers to ask for a reference,
    5. We call their current and previous landlords (if any) to ask how they are as a tenant, and
    6. We call their references to…well, you get it.
  4. If they have any specific issues that we need explanations of, such as evictions or bankruptcies, we ask them to submit letters of explanation that tell us why we don’t need to be worried about those issues.
  5. If all of our checks come out OK, and the character references we get don’t suck, and their finances look solid, we submit the tenant to our owner for a final thumbs-up or -down.
    1. If the owner approves, we send a letter of approval to the applicant and request that they put down a deposit and pay the first month’s rent.
    2. If we receive that money, it begins the Move-In Cycle.

…and that is that! Little did you know that you can define the day-to-day operations of a property management company in as little as 3,675 words!  So the next time you wonder what it is that your property management company does all day, you can rest assured it’s almost certainly somewhere up in here. J

 

 

Posted in: Hiring Property Manager, Managing Rentals

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